In Santa Cruz County and across California, rising pension costs have triggered alarm bells that ring through city halls and legislative corridors alike.

That has triggered two questions. Is anyone listening? And does anyone need to?

The countywide dilemma is part of a broader statewide problem that emerged after the economic crisis. Once-rosy financial projections on the health of the state’s massive, deep-pocketed pension funds encouraged improvements to worker benefits, often politically driven, that seem foolish in retrospect. Officials everywhere now talk grimly of rollbacks that will make public service a fundamentally less-desirable career for the next generation of Californians. The issue is especially critical in Santa Cruz County, a university community where one in six workers is employed by the government.

“The question that has to be asked and answered is, ‘What’s it going to cost, and how are we going to pay for it?’” said state Sen. Joe Simitian, a Palo Alto Democrat who is seeking to curb pension abuses. “In too many venues and on too many occasions, people haven’t asked.”

The price of those errant forecasts will be felt by taxpayers for years to come, as the state’s largest pension funds have begun handing out steep bills to local governments to help cover the cost of retirement benefits. Even with drastic pension changes under way, those bills are expected to continue for years.

Matt Nathanson, a county public health nurse and SEIU representative, believes threads of opportunism runs through the pension debate, arguing that pension problems are a symptom of the state’s economic problems, not the cause. Nathanson blames financial woes afflicting everyone, including local governments, caused by bad bank investments and corporations that ship jobs oversees and pay little or no taxes.

“It’s being used as a distraction for the real economic problems that are going on,” Nathanson said. “To me, that’s the story. The story isn’t the typist clerk III that’s going to work here in Santa Cruz County and retire with $2,000 a month. I don’t think she’s the one ruining the economy. I really don’t.”

Some argue that the problem is not as bad as advertised. The current problem is fueled by a stock market collapse not seen since the Great Depression. And chronic under funding of local and state pensions is a decades-old problem that hasn’t caused the widespread calamity many now project.

But pension funding shortfalls total hundreds of millions locally and billions statewide. For public safety pensions, some local governments — Santa Cruz County and Watsonville included — are now projected to spend one-third of their salary costs on pensions to help make up the difference, costing local taxpayers added millions every year. For the city of Santa Cruz, the projections were even higher until public safety union members agreed to pick up more of the cost.

Some of the reasons are beyond elected officials’ control, but they have to deal with the consequences: Growing pension costs often mean painful cuts elsewhere and could lead to lower benefits for new public workers.

“These are issues that we’re dealing with now with the (union) bargaining units,” said Susan Mauriello, Santa Cruz County’s top administrator, “the future costs of retirement and how we can bring those costs back into alignment with the level of service that’s desired on the street.”

Retirement riches?

Though assessing local pensions is difficult — workers tend to shift jobs often, taking their benefits with them — a Sentinel review found that some former area employees are living well on their pensions. More than 100 are taking home more than $100,000 in annual benefits, providing a level of comfort in their golden years alien to most workers. Retired Central Fire Chief Bruce Clark, for example, takes home more than $223,000 annually.

But thousands of former county employees make far less. Among the paper’s findings:

More than half of local pensioners earn less than $20,000 a year.

Teacher pensions, which have been targeted by critics nationwide, are modest. The median pension for former teachers is $27,365. The median for other government workers is $18,539.

Putting your life on the line comes with benefits. Public safety pensions are the most generous in the county, with the top pensions belonging to firefighters. The Central Fire Protection District pension tops the list with a median of $57,666.

Gov. Jerry Brown has proposed capping pensions, though he hasn’t put a dollar figure on it. But capping them at $80,000 annually would save $7 million in annual pension payouts to former local employees, though the actual savings to government are far less.

Before budget talks broke down last month, pension reform was widely seen as key to any bipartisan solution on the state’s multi-billion projected deficit. That sparked an intensely partisan debate pitting powerful interest groups against one another.

In February, the state’s Little Hoover Commission, an independent state watchdog group, slammed local governments for padding pension benefits even after the economic crisis severely impacted their funding. In particular, the commission singled out “golden handshakes” for retiring workers and warned that without significant changes, layoffs and service cuts are certain.

Allegation of double-dipping have also dogged the pension debate, with top managers retiring only to be hired back as consultants.

It is not unusual for former city execs to parlay their expertise into a second career. For example, recently retired police chiefs from Santa Cruz, Capitola and Watsonville formed a consulting group — Belcher, Ehle, Medina & Associates — whose principles collectively take home nearly $390,000 in pensions annually.

Former Santa Cruz Police Chief Steve Belcher said the group has done work for the city of Watsonville before, and the group has done work for other California municipalities. He said their criteria is only whether the group’s expertise can help.

“If not, then we don’t do it,” Belcher said.

Pension proposals floating around Sacramento will slash future pension benefits 25 to 40 percent, according to one pension reform group. But some are raising the politically and legally difficult possibility of going even further by slashing existing worker benefits, an idea that would make the recent pension showdown in Wisconsin look like a Sunday picnic.

“Either the whole thing goes down like a house of cards, or we do something with the existing benefits,” said Marcia Fritz, president of the pension-reform group California Foundation for Fiscal Responsibility.

UNDERFUNDED

It is a nationwide problem, but whether the problem is worse than it used to be is not clear-cut. In 1975, the U.S. General Accounting Office estimated state and local pensions were underfunded by $175 billion, or $931 billion in today’s dollars. The Pew Center on the States recently estimated that state and local pensions are underfunded by a nearly equivalent amount — $1 trillion.

While the under funding grabs headlines, those figures can overstate the problem. Unfunded liabilities measure cash on hand versus future obligations, similar to comparing what’s in your bank account against what you owe on a home mortgage.

In fact, the GAO — while it doesn’t regulate public pension funds — recommends a minimum 80 percent funding level. According to the Pew Center, California’s largest public pension plans — including the California Public Employees Retirement Association and the California State Teacher’s Retirement Association — were funded at 87 percent before the economic collapse.

While they bottomed out at 60 percent, CalPERS has since regained nearly $70 billion in value, and is now funded at 70 percent. CalSTRS is funded at 71 percent. If nothing changes, both are projected to have sufficient funds for decades, though both acknowledge change is needed.

But a coalition does seem to be forming around reform. Gov. Jerry Brown even signaled that retirements for the men and women who put their lives on the line — law enforcement officials, whose generous pensions are among the leading culprits in the pension crisis — may have to be pushed back.

“I know some of you might not be ready for that, but we have to deal with pensions. That’s going to be part of the program,” Brown told a February meeting of the California Police Officers Association.

Brown has since proposed a slate of pension reforms, including limiting how pensions can be calculated, limiting early retirements, requiring local governments to make scheduled pension contributions and prohibiting them from paying an employee’s share of pension costs, which several Santa Cruz-area governments do.

But it did not include delaying retirements, and many pension critics panned the proposals as insufficient.

INSIDE PENSIONS

It helps to understand how pensions work.

Pension payouts are funded mostly by investment returns on down payments made when a retiree was employed: every paycheck, the employee and employer kick in a share, and the money is invested in stocks, bonds, private equity accounts and more until an employee retires. That’s what funds retiree pensions, not present-day tax dollars

That common misconception frustrates many pensioners, especially when the media focuses on large, six-figure payouts, sometimes padded by financial gimmickry such as counting hefty one-time vacation payouts when calculating a pension.

“When I read those things in the paper they make me furious, because they’re really not about the reality for normal workers, for regular workers,” said Santa Cruz resident Roberta Barnett, a 63-year-old retired public health nurse.

“From the outside, people think you’re being given something,” she said. “But man, it’s really hard.”

The employee’s contribution is often fixed: say, 7 percent of their salary. The government’s share changes from year to year, based on numbers produced by accountants making sure state pension funds meet their future obligations.

And while many pensioners also get Social Security benefits, some don’t, typically teachers though often others as well. And even those that do get Social Security benefits can see those benefits — and even their pensions — reduced if they receive both.

Market returns were so high in the late 1990s and early 2000s that governments often paid nothing — their portion was annulled by booming stock values. That is an important factor in understanding how California — most states — got into this mess.

THE GOOD YEARS

For many years, investment returns were so good that the state’s pension funds asked local governments to contribute little, if anything, on behalf of their workers. For several years in the early 2000s, Santa Cruz County contributed nothing for its largest group of employees.

It was in that environment that the seeds were planted for what many see as an emerging crisis. Benefits were vastly improved, often through collective bargaining, though many say those increases often came in lieu of salary bumps.

The one decision often blamed for the state’s pension crisis was a political one — Senate Bill 400, a 1999 bill which sailed through both houses of the Legislature with a combined vote of 107-7.

The bill allowed local governments to dramatically hike pensions for cops and firefighters by tweaking the formulas used to calculate pensions, letting them retire as young as 50 with a 50 percent hike in their pension.

Few in the Legislature opposed it, especially since it dealt with the politically sensitive issue of compensating first responders. But it was not without critics, particularly among those familiar with pension financing.

“The worst public policy decision in the history of California,” is how Tony Oliveira, a former Kings County supervisor who now sits on CalPERS’ board, described it.

With the stock market chugging along, the added benefits looked free. Within a few years, many local governments started offering better retirements to other employees as well.

“It looked like it wouldn’t cost them anything,” Oliveira said. “What was left out was the risk.”

The 2008 stock market collapse crushed the pension funds, at one point costing CalPERS $100 billion from its peak value — almost enough to cover every projected budget shortfall in every state in U.S., according to budget data collected by the Center on Budget and Policy Priorities.

But the damage already had been done — local governments already had improved worker benefits. Even government administrators leery of improving basic retirement formulas were less resistant to other changes that have largely flown under the radar: changes to pension options that cumulatively added to the problems.

For example, both CalPERS and the CalSTRS started letting people buy “airtime,” or added years of services used to calculate pensions. Though often costing a worker thousands, airtime allows pensioners to retire early, thus drawing more benefits in their golden years.

But the funds missed the mark when it came to predicting the impact of that change. More people retired than expected, and the funds were forced to start charging more to buy extra years of service. Brown has now proposed eliminating the program.

Another hidden cost is CalPERS’ and CalSTRS’ guarantee of a pension’s value. Pensioners can earn annual increases cost-of-living increases, but if those benefits fall too far below their original value when calculated against inflation, CalPERS makes up the difference.

Over the past five years, CalPERS has spent $300 million on that so-called “purchasing power” guarantee. CalSTRS has spent a whopping $1.3 billion.

Another problem is beyond local governments’ control: changes in demographics — particularly life-expectancy — have been a major factor in pension funding woes. While employees who retired in 1950 were expected to live another eight years after retirement, retirees today live another 20 years.

All of this comes as local governments are grappling with slowing or even declining tax revenues, forcing them to find cuts elsewhere, and local employee unions expect to be asked for concessions during upcoming contract talks.

But some critics are skeptical of local officials’ willingness to do anything about the problem, particularly when public employee unions play such a big role in local politics.

“The unions either own the elected officials or the elected official gets the same benefits. Unfortunately, it’s hard to get people to turn off their personal interest on these things,” said Fritz, the pension reform advocate.

REAL FIXES?

Some marquee legislative efforts to curtail pension abuses won’t have much impact on the problem. Brown’s proposals address many of the abuses, but they don’t change the fundamental architecture of pensions.

For example, Simitian has a bill to prevent pension “spiking,” or inflating an employee’s single-year salary used to calculate a pension — either through working extra or higher-paying shifts, getting sweetheart one-year promotions or even using accrued vacation payouts — an effort Brown has joined. The bill also bars retirees from immediately being hired back as consultants.

Simitian admits the savings are modest — about $100 million. That may seem like a lot, but not in the world of pension financing: it represents less than 3/100ths of 1 percent of CalPERS and CalSTRS combined $378 billion in assets.

Nevertheless, Simitian said eliminating outrageous examples of pension abuses could help preserve the system for middle-class pensioners.

“This kind of systemic abuse undercuts the public support for a modest and reasonable pension plan,” Simitian said.

Nearly all local governments are looking at changes, but change isn’t easy. Even if lawmakers wanted to take the dramatic step of lowering pension benefits for current workers, legal protections require employers to live up to the promises made to workers when they were hired.

That has led many local governments to weigh a new, second tier of benefits for new hires, though it’s a change that won’t pay substantial dividends for years. Local cities even signed on to a statement of principles that calls for enacting that second tier. Seaside City Manager Ray Corpuz Jr. explained in an interview that if all cities got into the problem together, they all must get out together to the make sure the competition between local governments for good workers doesn’t get skewed.

“We cannot just sit and wait. Regional efforts should be pursued,” Corpuz Jr. wrote in a memo that circulated to local cities last year. “Otherwise, cities may have to suffer the consequences.”

With most government employees unionized, the stage is set for tense contract negotiations. Statewide, union members have begun to fight back, holding a Capitol press conference earlier this month to bust pension “myths,” and starting a website, DontScapegoatUs.com.

Having already been hit by the economic downturn, union workers worry that they are now going to take one on the chin in contract negotiations.

“How did it get to be where suddenly nurses, teachers, librarians, parks workers, how did we get to be the problem?” said Nathanson, the county health worker. “We’re part of the group that got screwed, I would argue.”

DIFFERING EXPERIENCES

The stories of two area retirees illustrate the debate. Both spent a large part of their career here before taking higher-paying jobs in Santa Clara County that boosted their pensions, a common occurrence in Santa Cruz County. Both also bought additional years of service, or “airtime,” and both defend pensions.

But their experiences are very different.

Barnett was a public health nurse in Santa Cruz County for 17 years before taking a higher-paying job in Santa Clara County. She also taught nursing obstetrics at Cabrillo College on and off for two decades.

Barnett’s pension is modest — a little more than $23,000 annually — and the job over the hill came at a price, as she lost the retiree health care benefits she would have had if she retired here. And since she’s not yet eligible for Medicare, Barnett works at UCSC to help cover her $660 monthly insurance bill, which pays for a plan with a $4,000 deductible.

And for her years of teaching, Barnett takes home a mere $83 a month.

“We live a very frugal life. We don’t spend a lot of money. My husband drives a 1988 Toyota truck,” said Barnett, who lives in a small home on the Westside of Santa Cruz. “We don’t have any bad habits. We don’t spend a lot of money.”

“That’s embarrassing that they have people who have pensions that are that large,” Barnett said. “The majority of people in public service don’t have really large pensions.”

One who does make a six-figure pension is Ron Whipp, the county’s former risk manager until he started working for the Santa Clara County Water Resources Agency later in his career. His $133,000 annual benefit reflects his executive position — Whipp was simply paid more than other county workers.

But Whipp also made a substantial investment in his own pension, paying a small fortune — well over six figures — to buy three years of airtime and an additional four years of credit for military service when he worked over the hill, another CalPERS perk. Whipp is essentially gambling that he lives long enough to recoup the money.

Whipp said the pension helped keep him in public service — he had offers that would have paid him substantially more than his government salary, he said.

“I likely would not have stayed in public service had it not been for the pension and the medical benefits,” Whipp said. “I made my decision for the long-term. My decision was also based on my desire to give something back to my community.”

And for top-level managers like Whipp, a loss or cap on pension benefits might force them to leave public service for the private sector, where salaries are often higher and managers routinely earn lucrative bonuses.

If that happens, local governments risk losing good people.

“If you’re going to get people like that, and hold on to them, you’ve got to pay ‘em something,” Whipp said, adding that the total compensation package should be comparable to the private sector.

Studies vary on whether public sector workers are paid less than other workers, with the California Foundation for Fiscal Responsibility — a group seeking to cut pensions — commissioning a recent study saying they earn similar amounts.

But one recent study supports Whipp’s assertion. Published in September by Jeffrey Keefe, a labor relations professor at Rutgers University, the study found that college-educated public workers were paid 25 percent less than their private sector counterparts. And they paid a greater percentage of their total compensation packages toward benefits.

Oliveira, the CalPERS board member, said public employees aren’t to blame for problems in the pension funds.

“Local government employees, our neighbors, they just do their jobs. I say that the responsibility for good decisions and bad decisions lie primarily with local government officials,” said Oliveira, who was a county supervisor for 20 years. “But let’s not demonize the men and women that are just working in these agencies and just want to do their jobs.”

For Simitian, there are lessons, too. Lessons about lawmakers who didn’t weigh the implications of their votes, didn’t act as good stewards of the public’s money. Lawmakers who couldn’t say no, not with one eye on their next job.

“Term limits has its pluses and its minuses,” Simitian said. “One of the things that suffers in a term-limited environment is the need for a longer-range view.”

TOP TEN PENSIONS IN SANTA CRUZ COUNTY*

1. DAVID L. PARRISH, COUNTY OF SANTA CRUZ, $232,985

2. BRUCE A. CLARK, CENTRAL FIRE PROTECTION DISTRICT, $223,173

3. RICHARD C. WILSON, CITY OF SANTA CRUZ, $217,058

4. TERRENCE A. MEDINA, CITY OF WATSONVILLE, $187,437

5. STEVEN J. FOSTER, COUNTY OF SANTA CRUZ, $176,722

6. P R BUSCH, COUNTY OF SANTA CRUZ, $176,328

7. STEVEN D. ROBBINS, COUNTY OF SANTA CRUZ, $175,181

8. HOWARD R. SKERRY, CITY OF SANTA CRUZ, $175,129

9. MICHAEL S. YOUNG, CITY OF SANTA CRUZ, $173,803

10. LANE J. LIROFF, COUNTY OF SANTA CRUZ, $173,346

*Because pensions follow an employee from job to job, these pensioners did not necessarily spend their careers in Santa Cruz County. David Parrish, for example, was a chief probation officer in Santa Cruz County, but his pension is determined by his salary when he was the top executive in Riverside County. Lane Liroff also spent the bulk of his career as a prosecutor in Santa Clara County, where his pension was set. The pensions are funded by state retirement accounts, not current county funds.

Comments about Pension Precipice: Pain and promise of public pensions are welcome. Off-topic comments and other violations of our community guidelines may be withheld or removed. Comments do not appear immediately after posting.